Southern Water has agreed to pay £126 million in penalties and payments to customers following serious failures in the operation of its sewage treatment sites and for “deliberately misreporting” its performance.
Ofwat’s “large-scale investigation” into the water company found that Southern Water failed to operate a number of wastewater treatments works properly, including by not making the necessary investment which led to equipment failures and spills of wastewater into the environment.
Southern said it is deeply sorry for the past failures outlined by the regulator and is fully committed to continuing to improve its business to deliver the standards its customers deserve.
Proportionate to the size of the business, this package of penalties and payments is the biggest Ofwat has ever imposed. The amount would have been larger had Southern Water not co-operated with the investigation, addressed its failings and agreed to this payment package, Ofwat said.
The regulator also found that Southern Water manipulated its wastewater sampling process which resulted in it misreporting information about the performance of a number of sewage treatment sites. This meant the company avoided penalties under Ofwat’s incentive regime.
The £126 million package will see Southern Water pay a rebate of £123 million to customers through their bills and pay a fine of £3 million.
The rebate includes £91 million in penalties Southern Water had avoided and a further £32 million of payments as recognition of the serious failures.
These proposed penalties are now subject to consultation, which will close on 19 July 2019. The total value of the package of penalties and payments is equivalent to 6.7 per cent of Southern Water’s wholesale wastewater turnover. The previous highest imposed by Ofwat was 3.5 per cent.
Southern Water wastewater customers should expect a rebate on their bills of £61, with £17 in 2020/21 and £11 in each of the following four years.
Southern Water’s wastewater treatment compliance has been under formal investigation by Ofwat since June 2017 due to breaches of licence conditions and statutory obligations.
Ofwat chief executive, Rachel Fletcher, said: “What we found in this case is shocking. In all, it shows the company was being run with scant regard for its responsibilities to society and the environment. It was not just the poor operational performance, but the co-ordinated efforts to hide and deceive customers of the fact that are so troubling.
“The previous management failed to stamp out this behaviour and failed to manage its plants properly. In doing so, Southern Water let-down its customers and operated in a way completely counter to the public service ethos we expect. That is why the company deserves such a significant sanction. We also think it is important Southern Water has a formal fine on their record for this serious breach.
“The rebates on customer bills will go some way towards putting things right. It is now for Southern Water, under its new leadership, and with the improvements it is introducing, to show it has learnt from this unacceptable behaviour and can be trusted again.
“Today’s announcement should also serve as a reminder to all other companies about the gravity of their responsibilities to society and the environment and that we will take action if they neglect them.”
Southern Water is undergoing an “ambitious transformation” under chief executive, Ian McAulay, who was appointed in 2017. The company acknowledged there is “still a lot to do” but said it is “making good progress”.
The water company has completed its own “extensive internal review”, which highlighted failures of people, processes and systems and a breach of licence conditions and statutory obligations from 2010 to 2017.
Ian McAulay, Southern Water’s chief executive, said: “In 2017, I was brought in to drive change and transformation. Since then we have been working very hard to understand past failings and implement the changes required to ensure we better deliver for our customers and meet the standards they deserve.
“We are deeply sorry for what has happened. There are no excuses for the failings that occurred between 2010 and 2017 outlined in Ofwat’s report. We have clearly fallen far short of the expectations and trust placed in us by our wastewater customers and the wider communities we serve.
“We are fully committed to continuing the fast pace of change delivered since 2017. There is a lot more work to do but we’re pleased that this proposal agreed with Ofwat enables us to fully make amends to our customers and regain their trust as quickly as possible.”
Sir Tony Redmond, London and South East chair for the Consumer Council for Water, added: “Customers of Southern Water will be absolutely appalled at the reckless disregard the company showed for the environment, which people care so much about. It also deliberately misled its customers, which is why it’s right the vast majority of the penalty is returned to bill payers who would have received most of this money had the company told the truth about its performance. Southern now has a huge task on its hands to rebuild the trust it has damaged.”
The Environment Agency is investigating the environmental impact as a result of Southern Water’s actions during the period.
Ofwat opened its investigation in June 2017 and publicly announced it in February last year.